Are State-Owned Enterprises Unfair Competition?

by Renato Mazzolini



In recent times there has been a growing concern in the U.S. about the mounting competition from foreign, state-owned enterprises (SOEs). Some claim that such companies enjoy unfair advantages over private business and that they will eventually undermine the market position of private sector enterprises in many areas. The article seeks to correct misconceptions about SOEs. The issues discussed include the real advantages of SOEs over private enterprises, the constraints they operate under, how they affect their corporate behavior, their international strategy, and the real challenge from SOEs. Government policies require that SOEs engage in costly activities at home and limit expansion opportunities beyond national frontiers. Politicians' interests and perceptions cause them to fight for outcomes which are conducive to suboptimal performance and, primarily, for domestic outcomes. From U.S. management's point of view, the most significant competitive threat can be expected on the export side. The emphasis on growth at home and on earning hard currency, and the relative unimportance of the profit motive will inevitably result in SOEs seeking to actively sell their goods overseas.

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